Australians are relying on their plastic more than ever. According to recent figures from JD Power and RBA, credit card use increased by 18% last year and the average credit card debt now stands at $1,990 per person, the highest in two years.
If you're thinking about getting a credit card, it's important to check the terms and to consider your own spending and saving habits, or you could wind up in debt that's hard to pay off. A credit card isn't a necessity in life, but it can have certain benefits – as long as you use it responsibly and don't miss your repayments.
Can you save money with a credit card?
If you're tempted by store cards that offer discounts on your purchases or credit card reward schemes, you should consider your spending habits and how likely it is that you'll be eligible to claim.
If you can't afford to pay off your card in full each month, the interest could end up costing you more than the savings you'll make.
Do you need a credit card to shop online?
If you already have one or more debit cards with your bank, these can be used in nearly all situations that a credit card can. This includes making online purchases and bookings, tap-and-go and contactless payments in stores and renting a car.
A credit card should be a supplement to your debit cards, not a substitute, and only used when you need more funds than you currently have available in your bank accounts.
Does a credit card help to build credit?
If you're trying to improve your credit rating to secure a mortgage or other loan, signing up for a credit card can be a useful way to show lenders that you're capable of managing debt and making repayments every month. As long as you don't slip up, which can have the opposite effect and harm your loan applications.
Credit cards aren't the only way to build positive credit. Under the new comprehensive credit reporting scheme, lenders have access to more of your financial information and can see the positive as well as the negative.
Is a credit card useful for emergencies?
If you need money urgently, a credit card can be a tempting option, but you should weight up the long-term consequences of paying interest on the money you borrow or not being able to meet the minimum repayments.
The best way to prepare for the unexpected is to save an emergency fund with your bank. This should ideally cover you and your dependents for several months. You should also compare personal loans to see if they offer more affordable payments or more flexible terms than credit cards.
Will you use it wisely?
If you often struggle to repay your debts, a credit card might not be the right choice for you. Credit cards are one of the most expensive ways to borrow money, and you could quickly end up with credit card debt that could take years to pay off.
Having a credit card in your wallet can also make it tempting to spend money you don't have. You should avoid relying on it too much for everyday purchases if you have a bank card or cash available, avoid unnecessary balance transfers, and avoid impulse purchases that you could end up regretting.
If you're already in credit card debt, getting another credit card to try to pay it off is more likely to make your problems worse.
How can I get out of credit card debt?
If you're struggling to pay off your credit card or other debts, Debt Fix can help. Talk to our financial experts today to find out what options are available.
Call us now on 1300 332 834 or get in touch online for your no-obligation assessment.